Mr Costello's repeated budget failure.(ARTICLES)

• Author: Stone, John
• Position: 168619621
• Pages: 13(12)

As this article is being written, our politicians are gearing up for a federal election, which could even be held in late August or 1 September, before publication. Most commentators, however, seem to think an October-November date most likely--a view reinforced by the current doleful prospect for the Coalition parties in the opinion polls.

This article makes no attempt to canvass reasons for that opinion poll performance. Two major areas of government failure, however, stand out. First is the general area of immigration and citizenship policies,(1) where its sins of both omission and commission have offended those chiefly responsible for electing it (in 2001 particularly). The other area where its failures are now costing it dearly is that of fiscal policy-cum-tax reform, to which this article is directed.

In what follows I first sketch the government's budgetary performance generally over its 11 years existence. In doing so I remark on what can now only be called the deliberately misleading nature of the Commonwealth's financial accounts. Next I examine the persistently woeful record of the Treasurer, Mr Peter Costello, and his department over recent years in forecasting budgetary revenues. Suspicion is growing that this record, given its one-way nature, can no longer be regarded as just bad luck.

Given the large budget surpluses recorded, year by year, in the Commonwealth's accounts, I ask what rationale there can now be for accumulating them. These surpluses have led, in turn, to the creation of that fiscal monstrosity, the Future Fund and, recently, the Higher Education Endowment Fund, which have distorted the Commonwealth's accounts even further. Finally, I note that the result of this fiscal record has been that, for at least four years now, the opportunity for genuine tax reform (as distinct from ad hoc fiddling at the edges of our current moribund personal income tax system) has been neglected.

THE GOVERNMENT'S BUDGETARY RECORD

The Howard Government's budgetary record can be divided into three periods, namely:

* The initial years (1996-97 through 1999-00) dealing with the $10.1 billion "Beazley black hole" deficit bequeathed to it in March, 1996 by the outgoing Keating Government. Also relevant was the $96 billion pile of Commonwealth debt, $69 billion of it deriving from that government's previous five successive years of deficit budgeting.

* The period (2000-01 through 2002-03) covering the introduction of the Goods and Services Tax (GST), including the resulting shock to economic activity and recovery therefrom. This was when the Commonwealth first began to present its false and misleading budgetary accounts.

* The period from 2003-04 to date, featuring incompetent (to use no harsher term) revenue forecasting. Combined with a lack of focus upon what should constitute personal responsibility and a private enterprise economy, this has led to an increasingly desperate search for means to cover up the consequences. Those cover-ups have led, in turn, to rendering the Commonwealth's accounts even more misleading. Meanwhile, unprecedented opportunities for genuine reform of the personal income tax (and associated corporations tax) system have gone begging.

The record for those four initial years, while hardly stellar, was none the less broadly commendable. The 1996-97 Budget, in particular, while failing to attack the Keating Government's swollen expenditures nearly hard enough, could still have been described (and was)(2) as "a good start". Failure to follow through 12 months later, and budgetary spending laxity more generally, were the most obvious subsequent demerits. Nevertheless, by June 2000, the Budget showed a $13.1 billion underlying cash surplus, while Commonwealth net debt had been cut to $54 billion (from 18.5 per cent of Gross Domestic Product to 8.3 per cent). So far, not so bad.

FALSE AND MISLEADING

The second budgetary period (2000-01 through 2002-03) centres around the Prime Minister's unwise decision in 1997 to introduce a centrally controlled broad-based indirect tax (the GST). After having caused the government almost to lose office in October 1998, this decision took effect from 1 July 2000. Its disastrous electoral consequences apart, the GST produced a huge rise in Commonwealth spending, a significant one-off rise in prices, a sharp temporary decline in economic activity (notably dwelling construction), and a consequent marked budgetary deterioration, moving temporarily back into deficit.

From a longer-run viewpoint, the government's decision to deny that the GST is a Commonwealth tax, and to portray it instead as being merely a tax collected on behalf of the States by the Commonwealth acting as their agent, was an act of palpable dishonesty.(3) To have this dishonesty repeated, year by year, in statements not merely by the Treasurer but also by his department(4) (which I once had the honour to head) is, I readily admit, personally painful to me.

A whole article could be written about this deceitful presentation of the Commonwealth's accounts. The Commonwealth Statistician, having retained sufficient statutory independence to take a truthful view, correctly treats GST receipts as Commonwealth revenue, and their disbursement to the States (after deducting a charge for costs of collection and administration) as Commonwealth expenditure, namely payments to the States.(5) The Auditor-General, similarly, who also retains sufficient statutory independence to allow him to tell the truth about this accounting scam, regularly qualifies the government's annual accounts in respect of it, beginning with the accounts for 2000-01.(6)

If the Treasurer were running a major Australian company, and presenting false accounts qualified by its auditors in this manner, he would risk being charged in the civil courts by the Australian Securities and Investment Commission for deceitful and misleading conduct. His company's shares would be marked down accordingly in the market, and he would be forced to mend his ways. But because Mr Costello seems to feel that he can do as he likes, and that in this falsehood he is above the accepted community standards of truthful behaviour,(7) he persists in it.

I have devoted some time to this episode, because it is the...